Can an Employer Treat a Medical Leave as a Resignation? Analysis of a Recent Superior Court Decision

A recent decision of the Québec Superior Court illustrates the significant risks faced by an employer that attempts to characterize a medical leave as a resignation and persists in advancing a version of events contradicted by the evidence.

In Totally Nuts and More Inc. v. Birenbaum, the Court ordered the employer to pay more than $490,000 to a long-serving employee while also strongly condemning the employer’s conduct before and during the litigation.

Case at a Glance

• Court: Québec Superior Court
• Case Citation: Totally Nuts and More Inc. v. Birenbaum, 2025 QCCS 4258
• Key issue: Whether an employee on medical leave had resigned and whether dismissal for cause was justified.
• Result: Employee awarded more than $492,000, plus interest, the additional indemnity, and costs.
• Key lesson: Resignations should not be presumed, particularly where an employee expressly states that they intend to return to work.

A Story That Becomes “Totally Nuts”: Compensation Dispute and Allegations

Ms. Birenbaum, who was approximately 60 years old at the time of the decision, had served as Controller of Totally Nuts and More Inc. for more than 20 years and reported directly to Mr. Philip Khazzam, the company's sole owner, president, and director. In addition to her financial responsibilities, she acted as an intermediary between management and the company's other employees.

At the end of 2020, during the most challenging months of the COVID-19 pandemic, a dispute arose concerning Ms. Birenbaum's compensation, when Mr. Khazzam refused to grant her the 1.6% salary increase that had been awarded to other employees and instead imposed a salary freeze. Following a particularly tense FaceTime call on December 16, 2020, Mr. Khazzam took the position that Ms. Birenbaum had verbally resigned from her employment.

Medical Leave and Written Communications

On December 17, 2020, Ms. Birenbaum's physician placed her on a three-month medical leave due to generalized anxiety disorder accompanied by panic attacks. Between December 19 and 22, 2020, and on several occasions thereafter, Ms. Birenbaum confirmed in writing to Mr. Khazzam that she had not resigned, that she remained employed by the company, and that she intended to return to work at the conclusion of her medical leave. She also maintained that Mr. Khazzam's conduct during the preceding months, including derogatory remarks, humiliation, and unfounded accusations, had contributed to the deterioration of her psychological health.

Despite her repeated confirmations that she had not resigned and intended to return to work following her medical leave, Mr. Khazzam continued to insist that she had resigned. During her leave, he sent her numerous emails to that effect, contacted her treating physician on two occasions to challenge both the diagnosis and the necessity of the leave, and threatened legal proceedings against her and even against her physician.

Audit and Termination

The company subsequently commissioned a retrospective accounting audit covering the years 2015 through 2020 and accused Ms. Birenbaum of various instances of misappropriation of funds. Relying on those allegations, Mr. Khazzam terminated her employment for cause on July 8, 2021, and filed a legal action seeking more than $145,000 in damages.

In response, Ms. Birenbaum filed a counterclaim seeking damages in lieu of notice equivalent to 24 months' salary, $100,000 in compensatory damages, $125,000 in punitive damages for the intentional infringement of her rights to dignity, reputation, and equality, and more than $50,000 in professional fees incurred in defending what she alleged was an abusive proceeding.

Finding that there had been no resignation, no serious grounds for dismissal, and that the employer's conduct was abusive, the Superior Court dismissed Totally Nuts' claim and granted Ms. Birenbaum's counterclaim.

Litigation and Damages Awarded

The Court awarded her damages in lieu of notice equivalent to 24 months of compensation, totaling $397,186, and ordered the employer to pay $30,000 in moral damages because of the humiliating and abusive manner in which the employment relationship was terminated.

The Court further awarded $25,000 in punitive damages as a result of Mr. Khazzam's intentional, unlawful, and inappropriate conduct on behalf of the company toward Ms. Birenbaum. The Court also ordered the employer to pay Ms. Birenbaum $40,000 in extrajudicial legal fees.

In total, the judgment requires the employer to pay more than $492,000 to Ms. Birenbaum, in addition to interest, the additional indemnity, and legal costs.

Why This Decision Matters for Employers

1. A resignation must be clear and unequivocal

The Court reiterated that a resignation cannot be presumed. Even when an employee expresses frustration or mentions the possibility of leaving their job, there must be a “voluntary, unambiguous and unequivocal” manifestation of the employee's intention to terminate the employment relationship.

In this case, Ms. Birenbaum had expressly informed her employer in writing that she was not resigning and that she was following her physician's recommendations. According to the Court, that email should have put an end to any debate regarding a possible resignation.

2. Medical leave must be respected

The Court also emphasized that employers must exercise caution when an employee is on medical leave. Repeated communications, attempts to challenge a medical diagnosis, and pressure exerted on an employee to resign may justify an award of moral damages.

3. Allegations of serious misconduct must be well founded

The Court sharply criticized the employer's attempt to justify the termination after the fact through allegations of misappropriation of funds that proved largely unfounded.

This case illustrates the significant financial consequences that may result from an internal investigation or disciplinary dismissal based on insufficient evidence.

4. Courts are prepared to sanction abuse

The Court concluded that the employer's conduct, both before and after the commencement of the litigation, was abusive. In particular, it found that the employer threatened to sue Ms. Birenbaum while she was on medical leave, conducted an audit in an effort to uncover grounds to justify her dismissal, repeatedly pressured her to resign despite her repeated refusals, and resorted to legal proceedings to achieve the same objective, despite relying on allegations that lacked merit.

Practical Considerations for Employers

This case serves as a reminder of several important principles that employers should keep in mind when managing employment relationships:

• Clearly document any resignation. In the context of tense or ambiguous exchanges, employers should obtain written and unequivocal confirmation from the employee before treating the employment relationship as terminated.
• Strictly respect medical leaves of absence. When an employee is on leave, communications should be limited to what is strictly necessary, and doubts regarding the validity of a diagnosis should be addressed through appropriate medical mechanisms rather than through direct interventions with the treating physician.
• Conduct disciplinary investigations with caution. Any allegation of serious misconduct, fraud or breach of the duty of loyalty should be supported by solid, pre-existing evidence. An investigation or audit undertaken solely to retrospectively identify grounds for dismissal may be viewed as abusive.
• Document long-standing workplace arrangements and practices. Informal accommodations, benefits or compensation arrangements should be recorded in writing to avoid a long-tolerated practice becoming the source of future litigation.

Appeal Pending: Issues Before the Québec Court of Appeal

This matter remains particularly noteworthy, as an appeal is currently pending. The appeal will provide the Québec Court of Appeal with an opportunity to consider, among other issues, the criteria for determining whether a resignation has occurred in a contentious employment context, the scope of an employer's obligations toward an employee on medical leave, and the circumstances in which moral and punitive damages may be awarded in the context of a wrongful dismissal.

In the meantime, the Superior Court's decision serves as a compelling reminder that a strategy aimed at forcing an employee to resign, or subsequently maintaining that an employee resigned when no resignation in fact occurred, may ultimately be found to be abusive and may expose the employer to significant financial liability.

Our Labour & Employment Group will continue to monitor developments in this matter closely. Should you have any questions regarding the issues raised by this decision, please do not hesitate to contact a member of our team.

A special thank you to Julien Brodeur, Articling Student, for his contribution to the preparation of this article.